Chris Prior
Vault.com Staff

Dan Bermingham is probably a little smarter than your average investor. Bermingham manages an automotive repair shop in Livermore, Calif. but holds a degree in finance from Cal State-Hayward and is working on an MBA at Berkeley. That gives Bermingham, who's been trading stocks on his own for approximately five years, insight at least equal to many professional stock pickers such as equity research analysts or portfolio managers. But does the average investor, someone without a finance degree but with access to the same information used by both educated amateurs like Bermingham as well as professionals, make the pros obsolete?

The answer is, likely, no. But the wealth of information available to the average investor is clearly changing the way investment-research related careers are shaping up. "I don't think [investment management is dead]," says John Rosenberg, an equity portfolio manager at Geneve Capital Group in Stamford, Conn. Rosenberg isn't directly affected by the information boom; he manages an "alternative investment strategy portfolio" for Geneve that features hedging strategies virtually impossible for an individual to copy. "From a long-term standpoint, there's always a need for my services," Rosenberg says. Still, he feels that, "As there's more information readily available for analysis and retrieval, it does reduce the need for people like me a little."

Other professionals are far more critical of their chosen field. "What's happening is that many amateurs understand important segments of the market ([for example] technology, networking, wireless, biotech) far better than almost all the 'professionals' do," says a research analyst at a hedge fund. "The problem comes in how the industry hires research analysts -- based almost exclusively not on what they know or can do but on their educational pedigrees, prestige or their previous employers or family connections. You end up with a lot of swelled-head analysts making absurd speeches that prove they understand nothing and aren't even aware that they understand nothing."

Knowing what to look for

Harsh words, but there may be some truth there. After all, an amateur like Bermingham is using largely the same methods as the pros. He has an "earnings first" approach to evaluating a potential equity investment. He also practices market timing, trying to evaluate "what sectors are gaining." Bermingham is also keeping an eye on Washington, D.C. "[You] can't ignore the power of the Fed," he warns, especially for momentum plays that are sensitive to interest rates.

~ "Most of my research is done on the Internet," Bermingham continues. He browses stock message boards -- Raging Bull is a favorite -- but is careful of pump-and-dump scams, trusting only a few board visitors with whom he has established a rapport.

The Internet, naturally, is a great equalizer in the equation, a fact recognized by the professionals. "I can go to Free Edgar and pull down a report in a couple of seconds as opposed to going to the Securities and Exchange Commission (SEC) or the company," says Rosenberg.

I know something you don't know

Looming over all of this, as it often does, is the SEC. In the interest of equality, the SEC has approved Regulation FD (short for Fair Disclosure). The rule, which went into effect October 23 despite some attempts to postpone implementation, prohibits companies from disclosing information to analysts before it's available to the general public. According to the SEC's release on Regulation FD, "Although analysts play an important role in gathering and analyzing information, and disseminating their analysis to investors, we do not believe that allowing issuers to disclose material information selectively to analysts is in the best interests of investors or the securities markets in general."

"I agree with that regulation in spirit," says Rosenberg of Geneve Capital. "The regulation is in keeping with certain tenets of the American financial markets that have made them the safest in the world." Bermingham agrees with the SEC as well. "From my perspective, it sounds like a good idea," he says. Expect there to be some impact on analysts. "It will cause the erosion of an advantage for professionals," concedes Rosenberg.

Room for everyone

Even with the SEC-aided flood of information, don't expect investment managers and research analysts to just fade into oblivion anytime soon. "There's no way that our culture can possibly constrict the flow of information," nor should it, says Rosenberg. However, "data doesn't lead to knowledge." Bermingham agrees. "I don't see the brokerage firms having to worry about their jobs," he says. Besides, "some people still need to be taken by the hand."